With Disruptions in Major Wheat Producing Regions, Global Supply Faces Mounting Challenges

The global wheat market is under significant strain as geopolitical tensions, adverse weather conditions, and economic pressures converge. At the heart of this crisis is Russia, the world’s largest wheat exporter, which is facing its worst winter harvest in decades. Disruptions in other major wheat-producing regions and the ongoing Russia-Ukraine conflict are further exacerbating uncertainty in international trade. With global supplies projected to decline, countries worldwide are grappling with the consequences of a volatile wheat market.

Only 31% of crops in Russia in good condition

World Grain magazine, in its January issue, has reported that the Russian grain industry is facing its most severe crisis in decades, with multiple challenges converging to threaten the world's largest wheat exporter. The 2025 winter harvest is projected to be the worst in 23 years, with a staggering 38% of winter crops classified as being in poor condition, according to ProZerno, a Moscow-based think tank. Only 31% of crops are in good condition, a dramatic drop from 74% in the previous year.

The crisis stems from a combination of adverse weather, systemic technological decline, and economic pressures. A prolonged drought from April to October 2024, coupled with damaging May frosts, significantly affected crop yields. However, the Russian Grain Union (RGU) contends that the crisis is not solely weather-driven. A sharp decline in agricultural technology has exacerbated the situation. Since 2021, the introduction of export duties and import quotas on high-quality seeds from Western countries has hampered productivity. Russian-made seeds, inferior in quality, have failed to match the output of their foreign counterparts.

Farmers are also grappling with reduced access to modern agricultural machinery due to high borrowing costs and economic instability. Sales of agricultural equipment dropped by 16.5% in 2024, while grain harvester production fell by 18%. The Central Bank's decision to raise interest rates to 21% has made commercial loans virtually inaccessible. The industry’s profitability has plummeted, with the average business profitability in the sector decreasing from 27.8% in 2020 to just 4.9% in 2024. Wheat production, which once enjoyed a record profitability of 32.5%, has turned unprofitable.

In response, farmers have resorted to cost-cutting measures, including reducing fertilizer use, adopting simplified farming techniques, and switching to lower-quality seeds. These measures have weakened crop resilience to extreme weather conditions, creating a vicious cycle of declining yields and profitability. The labor shortage further compounds the problem. Many farms are operating with only 70% of the required workforce due to emigration, recruitment into armed forces, and better opportunities in urban areas. With Russian grain production falling from a record 153.6 million tonnes in 2022 to 130 million tonnes in 2024, analysts are skeptical about achieving the government’s target of 170 million tonnes by 2030.

Global Wheat Market Dynamics

The challenges facing Russia have significant implications for the global wheat market. As one of the world's largest wheat exporters, any disruption in Russian supply can lead to ripple effects on international trade. The USDA’s December 2024 report projected lower global wheat supplies, consumption, and trade for 2024-25. Total global wheat supplies are expected to decline by 600,000 tonnes to 1.060 billion tonnes, with reduced production in the European Union and Brazil. EU production alone is forecasted to drop by 1.3 million tonnes, reaching 121.3 million tonnes.

While improved harvests in the Southern Hemisphere, particularly in Australia, have provided some relief, geopolitical tensions continue to overshadow market stability. The ongoing Russia-Ukraine conflict remains a significant disruptor. Both major wheat supplier countries have struggled to maintain consistent exports amid the conflict. Export quotas imposed by Russia and disruptions to Ukraine's port operations have further complicated trade dynamics.

US Wheat Associates’ December 2024 report highlighted mixed futures markets, with US wheat exports benefiting from lower domestic stocks but facing stiff competition in international markets. The Food and Agriculture Organisation’s Food Price Index indicated a decline in global wheat prices due to increased supplies from ongoing Southern Hemisphere harvests and weaker international demand. However, market volatility persists as geopolitical risks loom.

War’s Historical Impact on Wheat

The strategic importance of wheat during conflicts is not a new phenomenon. As highlighted in Dennis Voznesenski’s book War and Wheat: Navigating Markets During Global Conflict, wheat has historically been a critical resource for warring nations. During the world wars, control over wheat supplies played a pivotal role in sustaining populations and governments. Today’s Russia-Ukraine conflict mirrors this historical trend, with wheat once again emerging as a key factor in global food security.

Russia’s actions in Ukraine- including its interest in the country’s fertile agricultural lands and efficient port systems- highlight the geopolitical stakes. Disruptions to wheat supplies during conflicts often lead to price surges and social unrest, as seen during the Arab Spring. Voznesenski warns that the Black Sea conflict’s impact on wheat trade could escalate into broader global instability if unresolved.

Australia’s historical experience underscores the vulnerabilities of wheat-dependent economies during conflicts. During past world wars, Australia faced oversupply and collapsing prices due to disrupted trade routes.